Sks Microfinance: Company Overview: SKS Microfinance Was Founded by Dr. Vikram Akhula in The

SKS MICROFINANCE
Company overview:
SKS microfinance was founded by Dr. Vikram Akhula in the
year 1998 as a non -profit organization. In 2005 it became a for-profit
MFI. It is India’s largest MFI and first one to list on stock exchange in
2010.
Socio-economic factors
The very existence of MFIs is because of India’s present socio-economic
status. MFI’s were started to help the people below poverty line who earlier had no
access to bank credit. MFIs gave micro loan to these people without any collateral.
Women self help groups were formed and loans were given to the group. SHGs
used those funds to run small businesses like rearing goat, running small shops etc.
In India alone 70% of people do not have access to banking facilities. 30%
of people are below poverty line and are exploited by the moneylenders. All these
factors lead to the emergence of a new financial service called as micro financial
service.
Economic factors
Like any other financial services, inflation and the economy has a direct
impact on the company. When inflation rate increases, RBI will take measures to
curb money circulation. Hence banks increase their lending rates. This would in
turn affect the profit margin of the company.
Previously funding for the company was raised only through loans from
banks. But now the company has taken IPO route to fund company’s expansion
and funding needs. With the company now entering the capital market, it would be
easy for the company to raise funds.
Technological factors.
Technological developments have assisted in the reach of banking facilities
to the mass. With developments in IT and communication it has become easy to
access accounts from anywhere. SKS is a frontrunner in implementing new
technologies. Currently they are issuing smart cards to all it’s customers. This card
holds all the details about the customer such as loans taken, payments made and
the number of dues still left.
Political factor
As of now there isn’t any major Government intervention on the functioning
of MFIs. But due to recent complaints from Andhra Pradesh regarding the suicides,
Government is planning to formulate new guidelines for MFIs. Government has
also planned to put a limit on the rate of lending by the MFIs. This may hamper the
growth of the sector.
Government is also lending loans to Women’s self help groups (SHG) at

subsidized rates. So existing customers may prefer cheaper Government loans
instead of what the company offers.
Legal factors
So far MFIs were not managed by any separate acts. Most of them were
registered as societies or trusts or as non-profit organizations. They are governed
by following acts.
1. Societies under the Societies Registration Act 1860 or analogous State Acts
2. Public Trusts registered under the Indian Trust Act 1882
3. Non-profit companies registered under Section 25 of the Companies Act 1956
MFIs which are registered as for- profit organizations are considered to be

Non Banking Finance Companies (NBFC). They are governed by Companies Act
and treated as NBFCs. MFIs are not allowed to get any deposits from the people.
Now RBI has proposed to form a new regulatory authority for MFIs. This would
refine the sector and the players only with a vision would survive, which is good to
the industry.
Strength
Business model: The key strength of MFIs lies in it’s business model. Micro
credits are given to women’s self help groups to fund their small businesses. Every
person in the group has a joint liability for the loan taken. MFIs do not have money
of their own. They just act as intermediaries. They take loan from banks and
distribute it to the needy and the difference between the interest received and the
interest paid to the bank less operating expenses gives the profit of the company
Recovery rate is higher: Loan recovery rate of SKS microfinance is the highest in
the industry about 99% compared to an industry average of 95%.
Huge network available: With 2029 branches in 341 districts and with 21,000
employees SKS has the largest network in the entire industry.
Higher credit rating: For issuing microcredit MFIs should borrow from banks or
issue debentures to raise money. SKS was rated PR1+ by CARE which is the
highest rating for safety. Hence it is much easier for the company to raise funds.
Weakness
Not properly regulated: In India the Rules and Regulation of Micro Finance
Institutions are not drawn properly. In the absence of the rules and regulation there
would be high case of credit risk and defaults. In the shed of the proper rules and
regulation the Micro finance can function properly and efficiently.
Lack of awareness: According to the World Bank report 75% of the Indian poor
cannot access formal source and therefore they depend on the informal sources for
their borrowing and they charge 40 to 120% p.a. This is because of the lack of
awareness among the people. Only when the company can make people aware of
their presence they can change the scenes.
Dependence on banks: The dependence on bank loans for funding whose rate of
interest is higher and fluctuating is a major problem for the company. Now
company is looking at new avenues to raise funds.
Opportunity
Huge demand and supply gap: There is a huge demand and supply gap among the
borrowers and issuers. The annual demand of Micro loans is nearly Rs 60,000
crore and only 9000 crore are disbursed to the borrower. ( April 09)
Threat
Higher interest rates and multiple loans: Some MFI’s are lending at rates as
high as 60%.This created a bad image for the whole industry. Unscrupulous
institutions are a major threat to the industry. They charge more interest and give
multiple loans. People get new loans to repay the old loans. Then collecting agents
force the borrowers to pay back their loans. This has lead to several suicides in
Andhra Pradesh.

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SKS MICROFINANCE

Government is also lending loans to Women’s self help groups (SHG) at

MFIs which are registered as for- profit organizations are considered to be

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